Before I co-founded my current company, 37signals, in 1999, I had a software and Web design business called Spinfree. The Internet was a fairly new and exotic phenomenon back then, and it was pretty easy to drum up clients willing to pay quite well to improve their nascent websites. Within a year or so, I had a nice client list, built entirely through word of mouth. I was just a year out of college and making a good living. While my friends were struggling with entry-level jobs they didn't like, I was doing exactly what I wanted to do.

But Spinfree had a dirty little secret: It wasn't really a "company." It was just me. My headquarters consisted of a small desk a few feet from my bed in a cramped, one-bedroom apartment.

I was pretty insecure about my solo status and went to great lengths to make things appear otherwise. When describing Spinfree, I always spoke in terms of we, us, the team, or our offices. I trained myself always to use the collective first person—on the phone while pitching to potential clients, on Spinfree's website, in the proposals I submitted.

And because I seldom met my clients face to face, it was easy to keep the ruse going. Many of them probably had the impression that Spinfree was an actual company, complete with teams of professionals ensconced in cubicles, hard at work on their projects.

Why the bluffing? I was young and inexperienced and felt like people would not take Spinfree seriously if they knew that it was just me. After all, what responsible businessperson would trust some young punk right out of college with a brand's online presence? As the saying goes, no one ever got fired for hiring IBM. But it seemed certain that someone could get fired for hiring me. I felt I had no choice but to act big.

I remember the relief I felt when I hired my first employee, in 1998. Suddenly, there really was a we and an us. An enormous weight had been lifted, and I wondered how and why I had spent the past couple of years acting—and flat-out lying. A harmless little lie, maybe, but a lie nonetheless. I didn't feel good about it.

Did the deception actually win me any business? Who knows? It may have helped me get a foot in a couple of doors. But in retrospect, I find the fronting pretty embarrassing. And dumb. Because all of my clients came from word-of-mouth referrals, I was playing a game of chicken with a lot of potential business. Being discovered not only would have been humiliating—no one likes to get caught in a lie, however well intended—it could have harmed my reputation.

When I helped launch my next business, 37signals, we decided from the outset that openness, honesty, and transparency would be core tenets. The plan was simply to be honest with customers and let the chips fall where they may. That's exactly what we have done for more than a decade—whether it's admitting when we mess up or making sure our prices are public, with no hidden fees. We sleep well at night knowing we have nothing to hide.

I like to tell this story to young entrepreneurs when I meet them, because I see so many of them following the same pattern I did. They're stretching the truth, acting, and misrepresenting themselves in the name of winning business. It's especially common among independent designers, programmers, copywriters, and consultants. Obviously, I understand why they're doing it. I just wish they understood why 1. it's a bad idea, and 2. it's completely unnecessary.

Fibbing about scale is only part of the problem. There's an awful lot of resumé enhancement going on as well. Think about what's really happening when you see, say, Hewlett-Packard on someone's client list. Do you think the person really worked for HP? Or perhaps it was just a small job for the HP reseller down the street?

I once met an entrepreneur who told me that Boeing was a client. I raised an eyebrow: "Really?" It turned out the company helped a Boeing executive set up a personal blog on the side. When I asked him why he felt it was worth citing Boeing as a client, he told me it would help him build trust with other potential big clients. If they knew he'd worked with Boeing, they'd be more likely to hire him. I don't think he even understood what he was saying. Building trust via deception? That "credibility" isn't going to take you very far. And if you get caught in your bluff, you've lost the client for sure.

What's more, the business culture has changed considerably since I was "running" Spinfree in the mid-1990s. There's a lot more respect for small outfits and even solo players than ever before. Who isn't fascinated by the story of the lone programmer creating a blockbuster iPhone app on a laptop in his kitchen? Who doesn't admire the entrepreneur with the guts to do her own thing? Small is really where it's at. Even the big guys act as though they wish they were smaller. The largest corporations in the world sell themselves using terms most often used to describe entrepreneurs: agile, flexible, customer-centric. They crow about the fact that employees are rewarded for acting like entrepreneurs. And think about all the executives who fantasize about running their own shows.

Does that mean they will award you the big contract? Maybe not. Even in the age of the entrepreneur, not everyone is eager to place a major project in the hands of a small shop. But clients who are impressed by scale aren't the kind of clients you want anyway. Lots of start-up founders dream of working for a big brand, but the truth is, it's usually pretty crummy work. Instead, find like-minded clients closer to your own size, and grow with them. I can guarantee that you'll wind up doing more interesting, more challenging work.

Another advantage to owning up to your slight stature: Your customers will always know whom they are dealing with. They'll know they'll get the most personal service possible. A lot of people have had the experience of working with a company only to see their key contact move on to another job. The relationship is lost. That's not possible when it's your business. You are your business. They'll have you from start to finish. That's a big advantage.

I wish I knew then what I know now: Being small is nothing to be insecure or ashamed about. Small is great. Small is independence. Small is opportunity. Celebrate it. Don't hide from it. Businesses always benefit from being straightforward and clear. So don't worry about it. Don't act. Be upfront and honest, and bask in your smallness. It's truly to your advantage.

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework, which was published last March.

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